Private sector new benchmark for state cos

NEW DELHI: THE government’s plan to accord more autonomy to state-owned firms won’t be a one-way street. While enjoying greater freedom from administrative ministries, these companies will be benchmarked against their fleet-footed private sector rivals and overseas firms.

The department of public enterprises will appoint an agency to prepare a format for performance evaluation. Currently, the performance of public sector units (PSUs) are measured against the financial and operational performance targets set by the companies themselves. “The existing system lacks competitive benchmarking,” said a government official, requesting anonymity. The benchmarking effort will be in addition to the exiting performance parameters such as financial and operational efficiency, resource management and corporate governance.

The government expects the renewed grading system to lead to greater competitiveness and better performance by PSUs.

Companies such as SAIL and NTPC may not face any difficulty in the benchmarking exercise as infrastructure PSUs are far ahead of their private competitors in many of the performance parameters.

Any comparison between the four maharatnas ( ONGC, NTPC, IOC and SAIL) or large navratna firms with private competitors will be unfair as the private firms are just finding their feet in sectors dominated by large PSUs.

Industry analysts, however, are sceptical about the idea as the operational formats of PSUs and private firms are vastly different.

“Before such an initiative is undertaken, the incomparable environmental conditions both within and outside the organisations should be considered,” said Mahesh Y Reddy, advisor at the Infrastructure and Logistics Federation of India.

As per the proposal of the department of public enterprises, performance rating of PSUs that determines their status and autonomy levels will now be judged against international best practices.

One of the aspects that the government is looking at will be a PSUs’ response in taking on the work of converging its accounting format with International Financial Reporting Standards (IFRS), which is set to fall in place from April 2011.

With navratnas and many other smaller PSUs required to converge their accounts in accordance with IFRS, the government’s performance evaluation will see to it that the enterprise takes adequate steps towards this goal.